SNC is considering working with Nutrilife on a half-size contract for its herbal nutraceutical product line, with an incremental sales benefit to the top line of $2 million (a one-time 20% increase). In addition, Ayurveda Naturals, the India-based supplier of herbs for the Nutrilife contract, is offering very favorable payment terms: 2/30 net 60. In other words, SNC could lower its accounts payable liability to $153,000 by paying Ayurveda Naturals within 30 days, thereby realizing a 2% discount on raw materials. What would you like to do about this opportunity?
Accept or Decline
2013 2014 2015 Post 2015
Incremental Summary Income Statement ($ in thousands)
Sales $2,000 $2,000 $2,000 $2,000
Cost of Sales $1,833 $1,833 $1,833 $1,833
EBIT $167 $167 $167 $167
Incremental Balance Sheet ($ in thousands)
Accounts Receivable $603 $603 $603 $603
Inventories $452 $452 $452 $452
Accounts Payable $151 $151 $151 $151